The Politics of Job Polarization

WASHINGTON, DC – A core problem in the United States today – reflected in Donald Trump’s victory in the presidential election earlier this month – is that too many Americans feel helpless and insecure in the face of the job polarization that has resulted from globalization and new technology. While highly educated people at the top of the income distribution are doing better than ever, people with only a high school education face declining incomes, living standards, and prospects for themselves and their children. The middle class is being torn apart.

Trump won largely because he persuaded voters in Pennsylvania, Michigan, Wisconsin, and elsewhere that his policies will yield better outcomes in communities where manufacturing is declining. In fact, his administration, backed by Republican majorities in both houses of the US Congress, will likely only make things worse for hard-pressed Americans.

The underlying problem is new technology, specifically information technology, and the way it has transformed the nature of work. As David Autor and David Dorn have shown, many middle-skill, middle-income, middle-class jobs have disappeared. The new jobs that have emerged are well paid for highly educated people and poorly paid for people who have only a high school education. A leading symptom – but only a symptom – is the disappearance of well-paid factory jobs. Employment in manufacturing fell by more than two million from 2004 to 2014, and now accounts for just over 8% of total employment – continuing a long decline since the 1950s.

This technology-driven trend has been compounded by the effects of decreased transportation and communication costs, making it cheaper to move goods over long distances. Growing networks of sophisticated suppliers make it easier to move manufacturing activity overseas to lower-wage locations. Many US companies have made this a significant part of their business strategy, with the resulting decline of US manufacturing going hand in hand with a decline in unionization. When people lose a relatively high-wage and high-benefit union job, they often are reemployed at a lower wage and without the same level of benefits.

The 2008 financial crisis exacerbated income inequality and economic insecurity in part by accelerating the loss of manufacturing jobs. Arguments that it was necessary, or even “optimal,” to skew financial support from the government toward banks and their executives are not persuasive (at least, not outside Wall Street). Yes, well-off Americans experienced a big plunge in wealth when asset prices tanked. But they have since benefited from robust recovery in stock prices and high-end real estate.

In this environment, with so many people insecure about their economic prospects, the push by President Barack Obama’s administration for the Trans-Pacific Partnership (TPP) was a tone-deaf approach, at best. The administration argued that TPP would create some good jobs – and that people who lost jobs as a result could be “compensated.” But such compensation always proves to be minimal and is widely viewed as meaningless. That’s why Trump racked up large majorities in so many working-class bastions that had previously supported Obama.

Unfortunately, life is about to get worse for these voters. With control of the presidency and Congress, the Republicans are likely to pursue three main economic policies. Lowering personal and corporate taxes will primarily help richer Americans. Repeal of Obama’s signature health-care reform will have a severe impact on many lower-income people as they lose affordable insurance coverage. And financial deregulation will mostly favor large global banks, encourage reckless risk-taking, and set the stage for another large-scale crisis. In addition, the confrontational trade measures that Trump has proposed are likely to make the employment situation worse.

At the same time, the extent of any effective stimulus to the economy is likely to be very small. Overheating the economy – leading to higher inflation and higher interest rates – does not typically help lower-income people (remember the 1970s).

Trump’s main substantive promise has been to bring back middle-class jobs, particularly in manufacturing. But nothing in his policies or the broader Republican program will address the underlying issue of technological change. And the next wave of technology, including driverless vehicles, will have a major negative impact on the incomes and opportunities of everyone who currently delivers goods or transports passengers by car.

Moreover, the rapid advance of artificial intelligence and robotics means that even if manufacturing output in the US stabilizes or ticks upwards, it will not involve anywhere near the number of middle-skill jobs that it did in the past. Likewise, automation will erode the number of currently well-paid jobs in the service sector.

Given the role of technology in displacing workers, protectionism – tearing up trade agreements and imposing tariffs on Chinese and Mexican goods – won’t bring back high-paying manufacturing jobs, and Trump has no plan B. That means the polarization of America that brought Trump to power will only become far more severe.

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Comments

Trump won ...jobless workers voted for himalready conventional wisdombutclinton lost ; tho she is smart as a whip, she is not a good politicianthe press conspired - there is no other word 0 against herthe electoral college/popular votecomey

all in all, do we, liberal dems, really need to worry about a few thousand disgruntled workers in MI PA WI ?maybe a candidate that generates some enthusiasm and turn out is a better bet ?Read more

Trump has a Plan B- deportation. Reducing the supply of labor for less skilled jobs makes sense to ordinary people.Infrastructure investment could give rise to a new gravity model- though that will take time. Increased Currency and Political risk is probably already disrupting global supply chains. US Corporations may want to repatriate profits and downsize f.d.i because of Trade War or Sanctions associated risks. The World was already changing before Trump's victory. Trump and the GOP might seize the opportunity to give existing voters in the Rust belt a soft landing and carry on gerrymandering. Or they might just get greedy and line their own pockets while they can.Technological uncertainty is increasing and there's no way to put that genie back in the bottle. The notion that 'middle skill' jobs can be 'middle class' within a large bureaucratic firm is probably a pipe dream. We simply don't know what Business Models will look utterly obsolete even two or three years down the line. Read more

I would have appreciated some policy recommendation instead of just the take down. Yes, automation is eliminating jobs. Yes, much of global trade has created winners in Asia and losers everywhere else. Fine. Now what? Read more

Some time ago Dani Rodrik wrote a rather good article that showed that economists lie when the subject is trade. This article fits the “economist as professional liar” model rather well. There is simply no evidence of a productivity boom destroying middle-class jobs. By contrast, there is vast evidence of huge jobs losses from Open Borders and globalization.

Let’s take a look at the productivity data (BLS) Here is the real GDP per-capita growth data for various periods (1960-1979 2.70%, 1960-1990 2.42%, 1979-1990 1.93%, 1990-2000 2.16%, 2000-2011 0.64%). Obviously the trend in GDP growth is down with 2000-2011 being particularly bad.

The above data is from the BLS. The OECD productivity per-hour data is actually worse. (1970-1980 1.51%, 1980-1990 1.56%, 1990-2000 1.81%, 2000-2015 1.49%, 2010-2015 0.31%). As you can see, per-hour productivity growth since 2000 has been lower than historical levels and since 2010 productivity has stopped growing at all.

Note that the manufacturing productivity data tells the same dismal story. The biggest productivity gains were decades ago. FRED series PRS30006163 gives manufacturing output per-person. (1987-1990 1.66%, 1990-2000 4.2%, 2000-2010 4.11%, 2010-2016 1.32%, 2000-2016 3.05%). Clearly manufacturing productivity has risen faster than productivity in the economy as a whole. However, there is no evidence of a productivity boom that has somehow destroyed jobs.

Of course, the truth is that after 2000, output (general GDP and manufacturing) stopped growing and employment (measured different ways) crashed. A BLS report (http://www.bls.gov/opub/mlr/2008/02/art4full.pdf) has the overall picture right “Unlike the late 1990s, when rapid output gains led to increased productivity growth, reductions in labor hours were an important contributor to productivity increases from 2000 to 2005”. The BLS report shows that productivity gains after 2000 were lower than before 2000. However, before 2000 output growth kept employment relatively stable. After 2000, production moved massively offshore and U.S. jobs collapsed.

The bottom line is easy. The Trump story is more honest than the Johnson story.Read more

Absolutely. Unbelievably tone-deaf politics; it was nigh-on suicidal. Obama's team seemingly had no idea what the voters were thinking; the TPP was a colossal vote loser pretty much everywhere that mattered. Read more

Not really. Trump won because liberal elites successfully convinced conservative elites that their 'base' was a bunch of ignorant bigots, and their base, who were sick of being treated like ignorant bigots, voted against the "Washington Establishment" and for the candidate that their church, radio station and/or crazy uncle were assuring them was quite clearly the biggest enemy ever of the "Washington Establishment" given how they had *all* united against him.

"Better Outcomes" was at best a tiny part of their thinking, I'd say. Read more

I'm and Australian and I'm squirming in my seat at the moment, I can"t wait until Trump is officially in the White house to see what happens next. We have compulsory voting as you are well aware, it is not a burden and if the US had something similar 45 Million who didn't vote may have done so. The point is you get what you vote or reap. Australian politics is dominated by the right almost Trumpish, we are no better off the the average American, Ford, GM and Toyota leaving Australia this year. The jobs are not coming back. But my question is WHAT DO WE DO ABOUT IT, HOW CAN WE FORCE THESE CAREER POLITICIANS to understand what it is like to work 3 jobs hopefully to feed our children. Read more

This is a quite dishonest article. Go read the actual research done by David H. Autor, David Dorn, Gordon H. Hanson. Here is the abstract from their NBER paper.

"The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade

China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences. These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists. "

In real life globalization (outsourcing/offshoring) has had a huge impact and automation a small one. In fact, productivity has been stagnant in the overall U.S. economy of late. Read more

“Outsourcing to Asia has had a huge affect on employment, but right now mass automation is by far the bigger problem for labor markets.”

That’s a nice story and the world might be a better place if it was true. However, the actual data is contrawise. The period since 2000 is notable for its lack of productivity gains in the general economy and manufacturing. Indeed, productivity gains since 2010 (in the general economy and manufacturing) have been nil. See FRED Series OPHNFB and PRS30006163. The notion that we are living in an era of unusual automation is a self-serving myth. The data shows the reverse (spectacularly since 2010). Read more

"You quote one paper"... Yes, but that one paper just happens to have been written by the folks who produced the apology for globalization, that Johnson cites. Note that when Autor and Dorn write for the NBER, trade with China is the force destroying millions of jobs. Magically, when it is the NYT, its automation (with no supporting facts).

As for Johnson having read far more papers that I, no doubt. However, Johnson is a typical economist (in other words, a lying liar who lies). Here are the germane quotes from Dani Rodrik.

"Are economists partly responsible for Donald Trump’s shocking victory in the US presidential election? Even if they may not have stopped Trump, economists would have had a greater impact on the public debate had they stuck closer to their discipline’s teaching, instead of siding with globalization’s cheerleaders."

“It has long been an unspoken rule of public engagement for economists that they should champion trade and not dwell too much on the fine print. This has produced a curious situation. The standard models of trade with which economists work typically yield sharp distributional effects: income losses by certain groups of producers or worker categories are the flip side of the “gains from trade.” And economists have long known that market failures – including poorly functioning labor markets, credit market imperfections, knowledge or environmental externalities, and monopolies – can interfere with reaping those gains.”Read more

"Go read the actual research"? You quote one paper Mr Schaeffer. I suspect Simon Johnson has read a thousand that support his story, some of which he probably co-authored. Outsourcing to Asia has had a huge affect on employment, but right now mass automation is by far the bigger problem for labor markets. Read more

To those posting comments, may I suggest you re-read the first sentence and pay particular attention to the second half.

During the past two decades, the US has permanently lost an estimated 7.5-8.5 MILLION jobs. Of this total, approximately 1M job losses are attributable to NAFTA and an estimated 2M more job losses are attributed to the US trade imbalance with China - in total, 3 million jobs lost directly due to the effects of globalization. The remaining 4.5-5.5M jobs were lost due to advances in TECHNOLOGY. And it is estimated within the next three decades, the US may lose another 40-45 MILLION jobs, or roughly 25% of current total US employment!

Whereas all of the pretenders for the presidency (and Congress as well??) paid lip service to jobs and incomes, NOT A SINGLE ONE ACKNOWLEDGED THE BIGGEST ROOT CAUSE NOR PROPOSED ANY INTELLIGENT OR EFFECTIVE MEANS TO REVERSE THIS TREND!

That is why, in part, Trump and the current Congress will fail. If you can't clearly define or articulate a problem, you can't begin to solve it.

I checked out the link you recommended ["The Machines Displacing Middle Wage Jobs: Don't Let the Facts Get in the Way of a Comforting Story" (http://cepr.net/blogs/beat-the-press/the-machines-displaying-middle-wage-jobs-dont-let-the-facts-get-in-the-way-of-a-comforting-story?utm_source=feedburner&utm_medium=feed&utm_campaign]. The actual article at the end of this link actually provided nothing other than an opinion, based on an article {How Technology Wrecks the Middle ClassBy David H. Autor And David Dorn August 24, 2013 2:35 pm that appeared on the Opinionator webiste]. I read that article and it actually confirms exactly what I posted. I quote two paragraphs from said op-ed piece:

"Computerization has therefore fostered a polarization of employment, with job growth concentrated in both the highest- and lowest-paid occupations, while jobs in the middle have declined. Surprisingly, overall employment rates have largely been unaffected in states and cities undergoing this rapid polarization. Rather, as employment in routine jobs has ebbed, employment has risen both in high-wage managerial, professional and technical occupations and in low-wage, in-person service occupations.

So computerization is not reducing the quantity of jobs, but rather degrading the quality of jobs for a significant subset of workers. Demand for highly educated workers who excel in abstract tasks is robust, but the middle of the labor market, where the routine task-intensive jobs lie, is sagging. Workers without college education therefore concentrate in manual task-intensive jobs — like food services, cleaning and security — which are numerous but offer low wages, precarious job security and few prospects for upward mobility. This bifurcation of job opportunities has contributed to the historic rise in income inequality."

If you doubt this, take a look at virtually any manufacturing intensive industry. Many of the tasks that paid good middle class incomes have been eliminated due to automation. That in turn has rippled through a host of related support industries.

The op-ed piece also points out that many of the displaced workers don't have the means or ability to go back to school to obtain a four-year degree in a new career field. Many are not in a position to either commute or relocate to pursue either the needed education or to seek subsequent employment. Of those that could, many are mid-to-late career and would have a difficult time gaining employment after completing their education.

As for your assertion I'm making or repeating an argument to justify maintaining the status quo, you are full of shit! We can't stop innovating or "smash the machines" - much of our economic growth since WWII has come from innovation and will continue to do so going forward. But the jobs coming from innovation are fewer in number and many in the services sector pay considerably less. Yet the cost of living has continued to increase, putting real downward pressure on what's left of the middle class, the class that has fought the wars, provided the labor to build this country, and subsequently paid the majority of taxes.

My question to you or any other academic or politico is how do we address the labor mobility, education and/or re-training challenges efficiently and cost-effectively? And how do we do it while creating the necessary replacement jobs offering comparable incomes and benefits? Read more

NW, take a look at the actual numbers I posted above. The technology/productivity boom is just a myth pushed by people who profit from the status quo.

For another source, see "The Machines Displacing Middle Wage Jobs: Don't Let the Facts Get in the Way of a Comforting Story" (http://cepr.net/blogs/beat-the-press/the-machines-displaying-middle-wage-jobs-dont-let-the-facts-get-in-the-way-of-a-comforting-story?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+beat_the_press+%28Beat+the+Press%29)

"We are hearing endless accounts of how technology is displacing middle wage jobs (e.g. see the piece by David Autor and David Dorn in the NYT today). That would be work like manufacturing jobs, bookkeeping jobs, and other jobs that used to provide a middle class standard of living. It's a comforting story for the people who control the media, but it happens not to be true.

The story told by Autor and Dorn is that technology displaces these jobs putting downward pressure on the wages of formerly middle class workers. At the same time it creates more jobs for the people who program the machines, hence we see higher wages for high end workers.

This story is comforting to the affluent because it means that the upward redistribution of income that we have been seeing is simply an inevitable outcome of technological progress. It might be unfortunate, but what are we supposed to do, smash the machines?"

Johnson is providing PC cover for the status quo. Not exactly honorable. Read more

"But such compensation always proves to be minimal and is widely viewed as meaningless."

Still I perceive it as being of key importance, albeit in a more general context.Subgroup liberation on all social scales demands mutual fairness and compensation. Subgroup liberation is a term to describe activity that benefits a group like for example the EU or an individual. If they act while taking care of others and compensating damage done, the global pie maybe would in dire times shrink a lot slower. And arguments about its distribution could stay a lot friendlier.If you mid, there's more in my accounts' biography. Read more

Here, here! That is the hard work that is missing; the impacts are generally predictable. Revealing them generates massive political push back against the Trade Deal. If that pressure is overcome identifying suitable replacement industries with equal employment numbers, establishing effective job training programs, finding funds to entice the new industry to move in: those are hard, detailed, disciplined endeavors. Are we really capable of rising to that challenge? If not we face a revolution when long term unemployment reaches some number north of 25%. Read more

Simon, by having people like you, no wonder why the IMF is so messed up. You are already judging a person that has not been appointed yet, based on utterly stupid assumptions and prejudices that he is likely to underperform and make a big mess, as if all his predecessors had done such an excellent work. If the policies of the IMF had been directed at creating jobs and real economic growth in the real economies, rather than subduing them, none of the non sense of the last decades or so would have even occurred. My advice to you Simon, is to look for a different job, possibly in manufacturing, but make sure that your potential employer signs up for a lucrative insurance policy against defective materials before doing so. Read more

It is the job of those like Simon Johnson to stop whining about Trump--and the worse populists who are going to follow him elsewhere--and the US if he fails. The job of those like Johnson is to come up with and debate Plan B, C, etc.

The right Plan B may be very radical. Maybe something with large elements of the American system in World War II. Maybe reduction in hours to 20 hours a week, with parachute money paid for by a huge increase in corporate and capital gains taxes. Maybe an end to all college student loan programs for those below the top 25% of their class and the replacement by multi-billion programs for computer and other skill training. Certainly an end to college training for military personnel leaving the service, and the use of DOD as a huge technology training program.

Johnson is young enough to adjust. Those like Krugman are too conservative and old-fashioned and old and need to be replaced by those who can think. The Hayekian period since 1980--really 1992--is over. It has produced revolution that will become more extreme if it is not ended quickly. We are lucky Trump is so mild--really too conservative--and we must help him become more radical. Read more

Could be compensated is not will be compensated as the working class knows. For some reason could be NEVER becomes will be. I can't believe nobody in are so called "Elites" hasn't figured out what the working classes next response will be when Trump fails them as I agree he will. My guess 5.56 Nato, and IED's, we are hitting the point where the ballot box is proving to be a bad joke. The politicians make speeches but nothing gets better. I ask How long before the ever growing number of losers in the great globalization of US? industry turn to violence since the ballot box is a complete and utter waste of time??????? Read more

SE, the winners from Globalization have zero interest in compensating the losers. Historically, the elite institutions of the U.S. were run by a WASP aristocracy. They knew they were a hereditary elite and adopted patriotism to maintain some contact with America. Today we have a meritocratic elite (SAT, ACT, etc.) that believes that they rule by virtue of their own superiority. They have no guilt about washing the rest of America down the drain. Today's winners are into sharing (to say the least). Read more

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